[Exclusive] SEC Clarifies Public Question on Draft “Crypto” Rules
SEC said the draft crypto rules requires comments and suggestions from the public before they released the final IRR.
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- SEC has drafted Implementing Rules and Regulations (IRR) for the Financial Products and Services Consumer Protection Act (FCPA) which includes the classification of “tokenized securities products” as securities.
- The IRR draft has led various publications to interpret that the SEC is classifying cryptocurrencies as securities, but the Commission has clarified that the IRR is still in the drafting stage and more details or clarification will be provided once the final IRR is released.
- Once the IRR is finalized, the SEC will be given the power to formulate its standards and rules, conduct market surveillance and examination, impose enforcement action against non-compliant financial service providers, and impose fines for investment fraud.
An article on BitPinas highlighted one of the important parts of the Implementing Rules and Regulations (IRR) drafted by the Securities and Exchange Commission (SEC) for Republic Act No. 11765, or the Financial Products and Services Consumer Protection Act (FCPA), which is the inclusion of “tokenized securities products” to be tagged as security.
Various publications have interpreted this that SEC is classifying cryptocurrencies as securities. It is mainly because, in the IRR, tokenized securities products are categorized as those that grew with the abstraction of key characteristics from cryptocurrency’s underlying distributed ledger technology to apply in the traditional financial sector.
According to Atty. Rafael Padilla, a lawyer specializing in blockchain and a BitPinas contributor, the screenshot above does not say that the Commission is tagging crypto as security, and “tokenized securities are, for obvious reasons, correctly treated as security, but the excerpt doesn’t say that crypto = security.”
The lawyer’s statement is supported by his prior article, which pointed out that tokens and offerings that incorporate investment features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others contain the hallmarks of security under the Securities Regulation Code (SRC).
With this, BitPinas exclusively asked the SEC: Does the Draft IRR intend to classify cryptocurrencies as securities?
The Commission reiterated that tokenized securities products will really be classified as securities under the IRR draft, but it reminded the public that the IRR released is just the draft and not yet finalized:
“As per the draft IRR, securities shall include “‘tokenised securities products’ or those which grew with the abstraction from cryptocurrency’s underlying distributed ledger technology to apply in the traditional financial sector.”
We note however that the IRR is still in the drafting stage. We can probably provide more details/clarification on the interpretation once the final IRR is released,” SEC said in a statement.
As per the constitution, IRRs shall cover all the mandated functions and duties of the Republic Act counterpart to facilitate the implementation of the provisions.
Though the IRR for RA 11765 is still in the drafting stage, once finalized, it shall take effect fifteen (15) days after the date of its posting. The Commission has not yet announced the target date for releasing the fully-constructed IRR.
Currently, one of the highlights of the drafted IRR is to give the SEC the following measures:
- power to formulate its standards and rules, conduct market surveillance and examination, require financial service providers and their third-party agents to submit reports, and impose enforcement action against non-compliant financial service providers.
- define investment fraud as any form of deceptive solicitation of investments from the public, which includes Ponzi schemes and other schemes involving the promise or offer of profits or returns that are sourced from the investments or contributions made by the investors themselves.
- require investment advisers to file their applications with the Commission within 90 days from the effectiveness of the memorandum circular.
- require the staff of financial service providers that directly deal with consumers to undergo adequate training suitable to the complexity of the financial products or services they offer.
- punish the lawbreakers by one- to five-year imprisonment or a fine of ₱50,000 to ₱2 million, or both.
- impose a fine of ₱50,000 to ₱10 million for each instance of investment fraud and not more than a ₱10,000 fine for each day of continuing violation.
This article is published on BitPinas: [Exclusive] SEC Clarifies Public Question on Draft “Crypto” Rules
Disclaimer: BitPinas articles and its external content are not financial advice. The team serves to deliver independent, unbiased news to provide information for Philippine-crypto and beyond.
